The delinquency rate or delay in loan repayments by micro-finance institutions (MFIs) has improved in the past six months. The number of loan accounts that are more than 30 days outstanding (from their scheduled date) has declined by more than 33 percent from above 1.5 percent (of total loans) in mid 2012 to around 1 percent in April 2013, according to Equifax Credit Information Services (Equifax).
Equifax offers credit information services in line with Credit Information Bureau of India (CIBIL), the largest one in the industry.
"The decline in delinquency rates is great news for Indian Microfinance and Banking industry, and is an affirmation that the use of the credit bureau in MFI lending and related tools are adding visibility and value to the MFI market both for lenders and consumers," said Sanjay Patel, MD & CEO, Equifax.
The MFI industry had run into trouble since October, 2010 in Andhra Pradesh wherein a special legislation was passed barring MFIs to charge high rate of interest (around 30%) to their borrowers. This in turn, had impacted the repayment capabilities of MFIs, which started defaulting. Consequently, the quality of loans that banks had extended to MFIs worsened.
Typically, an MFI disburses small ticket short-term loans, typically with duration of one year. Terms of such loans include weekly or monthly repayments, however with no collateral. Any loan without any collateral is prone to generate loan losses for banks.
Meanwhile, the situation has shown some improvement. According to an estimate, bank lending to the micro finance rose nearly 40 percent in 2012-13 over last year. Earlier, banks had stopped extending credit to MFIs.
Equifax has over 100 MFIs in India as members. This represents more than 90% of the country's NBFC - MFI industry. Of late, a significant increase in MFI lending has been seen in West Bengal, Tamil Nadu, Kerala, Bihar, Assam and Uttar Pradesh.
saikat.das@network18online.com
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